Chapter 3 - Competition

Question 1

What is a platform?

Answer 1

Bringing together two or more parties to create and exchange value through the business rather than trying to create all the value themselves

Question 2

How do platforms represent a fundamental shift in how businesses relate to each other?

Answer 2

From linear to more networked business models

Can often be very light in assets but generate large revenues

Rather than simply paying for services received, customers both provide value and receive value - value grows as more people use the platform

Question 3

What are important points worth noting about platforms?

Answer 3

Distinct types of customers

Direct interaction

Facilitating

Question 4

Distinct types of customers

Answer 4

The unique dynamics of platforms arise because they bring together different parties that each play different roles and contribute and receive different kinds of value

Question 5

Direct interaction

Answer 5

The two or more sides must interact directly - that is, with a degree of independence

Question 6

What are four types of platforms

Answer 6

Exchange

Transaction systems

Advertising supported media

Hardware/software standards

Question 7

Exchange

Answer 7

Bring together two distinct groups of customers for a direct value exchange, with each group attracted by the number and quality from the other side

Question 8

Transaction systems

Answer 8

Act as an intermediary between different parties to facilitate payments and financial transactions

Question 9

Advertising supported media

Answer 9

The platform plays an additional role of creating media content that is attractive to consumers

As the platform attracts more people, its value to advertisers increases

The advertisers, in turn, provide value to the audience by reducing or eliminating the cost of the content for them

Question 10

Hardware/software standards

Answer 10

Provide a uniform standard for the design of subsequent products to enable their interoperability and benefit the ultimate customer

Question 11

Direct network effects (or same side network effects)

Answer 11

Occur when the increasing number of customers or suers of a product drives an increase in value or utility for that same type of user

Question 12

Indirect network effects (or cross slide network effects)

Answer 12

When an increase in the number and quality of customers on one side of the platform drives increasing value for customers on the other side of the platform

Question 13

Are indirect network effects reciprocal?

Answer 13

Not always

In advertising supported media, the indirect network effects usually run only one way: as the number of readers increases for a newspaper, its value to advertisers increases as well, but increasing the number of ads in each issue does not directly increase the value for readers

Question 14

What are key elements of platforms?

Answer 14

Frictionless acquisition

Scalable growth

On demand access and speed

Trust

Question 15

Frictionless acquisition

Answer 15

No longer a need to negotiate terms for each additional participant in a multisided platform, removing a critical bottleneck to growth

Question 16

What is the biggest impact of digital technology?

Answer 16

The size of the businesses involved

Question 17

What is the downside to network effects of platforms?

Answer 17

It can take a lot of capital to bring parties to the table at sufficient scale

Question 18

What are competitive benefits of platforms?

Answer 18

Light in assets

Scaling fast

Winner takes all

Economic efficiency

Question 19

Light in assets

Answer 19

Both capital and operating costs are low

These companies also tend to have few employees for the revenue they generate because their customers do much of the work that employees would do in a vertically interpreted business

Can achieve high operating margins on a percentage basis

Question 20

Scaling fast

Answer 20

Low operating costs, combined with a scalable cloud computing architecture

Ability of platforms to increase revenue with relatively slow employee growth

Question 21

Winner takes all

Answer 21

Customers would rather sign up for a platform that already has broad acceptance or many other users.

Question 22

What are 3 factors that need to be present for winner takes all?

Answer 22

Multihoming

Indirect network effects are strong

Feature differentiation is low

Question 23

Multihoming

Answer 23

Using more than one platform 0 is hard for the customer